In some states, the lender can seek a personal judgment (called a "deficiency judgment") against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower using regular collection methods, like garnishing the borrowers’ wages or levying the borrowers’ bank account.
If you go through a West Virginia foreclosure, but the sale price isn't enough to cover the mortgage's balance, your lender could come after you for a deficiency judgment.
Most people who take out a loan to buy a residential property in West Virginia sign a promissory note and a deed of trust. These documents give the lender the right to foreclose if the borrower fails to make loan payments. Most foreclosures in West Virginia are nonjudicial, which means the lender does not have to go through state court to foreclose. (In judicial states, the lender must foreclose through the state court system.)
In West Virginia, the lender may obtain a deficiency judgment by filing a lawsuit following a nonjudicial foreclosure.
In 2014, the Supreme Court of Appeals of West Virginia held in Sostaric v. Marshall that a borrower facing a lawsuit for a deficiency judgment could get an offset in the deficiency amount if the property's fair market value was greater than the foreclosure sale price. To get this offset, the borrower would simply raise this issue as a defense in the deficiency action (Sostaric v. Marshall, 234 W.Va. 449, Sup. Ct. of App. (November 12, 2014)).
But Senate Bill 418, effective June 11, 2015, overturned the Sostaric decision and amended West Virginia law. Now, state law says that a defendant in a civil action seeking a deficiency judgment on a debt secured by a deed of trust may not assert a defense that the property wasn't sold for its fair market value at a foreclosure sale. (W. Va. Code § 38-1-7).
Generally, when a senior lienholder forecloses, any junior liens (these would include second mortgages and HELOCs, among others) are also foreclosed, and those junior lienholders lose their security interest in the real estate. If a junior lienholder has been sold-out in this manner, that junior lienholder can sue you personally on the promissory note.
So, if the equity in your home doesn’t cover second and third mortgages, you might face lawsuits from those lenders to collect the balance of the loans.
A "short sale" is when you sell your home for less than the total balance remaining on your mortgage loan. The proceeds from the sale pay off a portion of the loan.
To avoid a deficiency judgment after a short sale in West Virginia, the short sale agreement must expressly state that the lender waives its right to the deficiency. If the short sale agreement doesn't have this waiver, the lender may file a lawsuit to get a deficiency judgment.
A "deed in lieu of foreclosure" is when a lender agrees to accept a deed to the property instead of foreclosing. With a deed in lieu of foreclosure, the deficiency amount is the difference between the borrower's total debt and the home's fair market value.
Often, a deed in lieu of foreclosure is deemed to fully satisfy the debt. But West Virginia doesn't have a law that says the lender can't get a deficiency judgment after a deed in lieu of foreclosure. So, the lender may try to hold the borrower liable for a deficiency following this kind of transaction.
To avoid a deficiency judgment with a deed in lieu of foreclosure, the agreement must expressly state that the transaction is in full satisfaction of the debt. If the deed in lieu of foreclosure agreement doesn't have this provision, the lender may file a lawsuit to get a deficiency judgment.
The laws that govern nonjudicial foreclosures in West Virginia can be found in the West Virginia Code, §§ 38-1-3 through 38-1-15. Statutes change, so checking them is always a good idea.
How courts and agencies interpret and apply laws can change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're facing a foreclosure.
]]>Also, most people who take out a loan to buy a residential property in West Virginia sign a promissory note and a deed of trust. These documents usually give homeowners certain contractual rights after a mortgage loan default.
So, don't get caught off guard if you're a homeowner behind in mortgage payments. Learn about foreclosure laws in West Virginia and how the foreclosure process works, from missing your first payment to a foreclosure sale.
In a West Virginia foreclosure, you’ll most likely get the right to:
Once you understand the West Virginia foreclosure process and your rights, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)
During the preforeclosure period, the servicer can charge you various fees. Also, in most cases, federal law requires the servicer to let you know how to avoid foreclosure, and most mortgage contracts require the servicer to send you a breach letter (a preforeclosure notice).
Under federal law, the servicer usually can’t officially begin a foreclosure until you're more than 120 days past due on payments, subject to a couple of exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in West Virginia, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don’t respond with a written answer, the lender will automatically win the case.
But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders opt for the nonjudicial process because it’s quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in West Virginia are nonjudicial. The foreclosing lender first gives a notice of default to you (the borrower), which provides ten days to cure the default (get current on the loan). (W. Va. Code § 46A-2-106).
The trustee then mails you a notice of sale within a reasonable time before the sale, as well as publishes the notice in a newspaper. The notice requirement is complete when the trustee mails the notice of sale, regardless of whether the mail is returned as refused or is undeliverable. (See Joy v. Chessie Employees Fed. Credit Union, 411 S.E.2d 261 (W.Va. 1991). In Joy v. Chessie, the court said 18 days was reasonable notice. See also W. Va. Code § 38-1-4).
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, including West Virginia, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower (see below).
If the lender is the highest bidder, the property becomes “Real Estate Owned” (REO). But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what’s needed to pay off all the liens on your property—you're entitled to that surplus money.
A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy. Working out a loss mitigation option, like a loan modification, will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. (But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.)
Again, the notice of default gives the borrower ten days to reinstate the loan. You’ll lose the right to reinstate after three defaults. (W. Va. Code § 46A-2-106). But the lender might agree to let you complete a reinstatement.
One way to stop a foreclosure is by “redeeming” the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. But West Virginia law doesn’t provide a redemption period following a nonjudicial foreclosure.
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.
Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out the options available, speak with a local bankruptcy attorney.
The federal Servicemembers Civil Relief Act (SCRA) provides legal protections to military personnel facing foreclosure.
In a foreclosure, the borrower’s total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a “deficiency.” For example, say the total debt owed is $400,000, but the home sells for $350,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
West Virginia allows deficiency judgments.
Deficiency judgments are allowed under West Virginia law. (W. Va. Code § 38-1-7). To get a deficiency judgment after a nonjudicial foreclosure, the lender must file a lawsuit against the borrower.
A foreclosure could result in serious consequences, like lower credit scores, a deficiency judgment (as mentioned), or tax ramifications.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Get tips on what to do—and what not to do—if you're facing a foreclosure.
Learn about last-minute strategies to stop foreclosure.
Find out if foreclosures are on the rise.
If you have questions about West Virginia’s foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. It’s also a good idea to talk to a HUD-approved housing counselor about different loss mitigation options.
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